Where does the retail pain end?

Some retailers are still doing it tough

It seems each week we have new statistics or more announcements about how tough the retail sector is going.

Notwithstanding the positive consumer confidence, GDP and inflation metrics, it seems our retailers can’t take a trick.

This week it’s been the turn of Myer (ASX: MYR) and Specialty Fashion (ASX: SFH) to add to the parade of woe, with the department store chain announcing this week that it was cutting 100 jobs, and the womenswear retailer blaming a fall in sales for a halving in this years’ profits.

These two businesses have been at the forefront of retail pain, along with Myer’s number one competitor David Jones (ASX: DJS), which recently forecast a couple of years of flat profits while it invested in transforming itself into a ‘bricks and clicks’ retailer.

Specialty Fashion’s announcement today really is a tale of woe. The owner of the Millers and Katies brands reported that same store sales have fallen 3.4 per cent, and the company is planning to close 120 stores over the next three years.

The sales decline is even worse in light of the closure of 20 stores during the second half – the traditional view of retail is that opening new stores may cannibalise your existing locations, so a closure should mean current consumers seek out the remaining stores, giving those stores a boost.

Clearly that’s not the case in Specialty’s case – meaning either than same-store sales declines would have been worse if you remove the boost from those shoppers who changed stores, or that there was no real movement of customers who either shopped elsewhere or not at all – leading to questions about the quality of the company’s retail brands.

Either scenario is bad news for the company, and for investors.

In a sign of the retail times, the company reported that online sales tripled, to now represent just over 2.5 per cent of total sales – and it is pinning its hopes on continued growth in that area to offset the weakness in its physical stores.

It will be interesting to see the impact on competitor Noni B Limited (ASX: NBL), when it reports full year sales. The company managed to deliver sales growth for its financial first half and significant earnings growth by getting back to basics. Noni B’s results will certainly put those of Specialty Fashion in perspective.

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Scott Phillips is an investment analyst with The Motley Fool. He owns shares in David Jones. You can follow Scott on Twitter @TMFGilla. Take Stock is The Motley Fool Australia’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691).

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